West Asia has always been a hotbed of hostilities. The region has seen over 100 conflicts, big and small, since 1900, and several among these have been sparked by hatred that has simmered for years, like the ones between Israel and Hamas-led Palestinian militants. Many of the nations in the region have uneasy borders, quite like the India-Pakistan border, where frequent skirmishes are the order of the day. The moot question today, though, is whether what’s happening in the Middle East can escalate and hurt other economies of the world and roil markets. While each time is different, we did some digging to draw some indications from history.
Source: Wiki
What history tells us
We looked at conflicts in West Asia since 1990 for clues on market direction. For this, we took note of the movement in the S&P500 index from near the time of the break-out of the conflict to three months and six months after this. The results don’t offer a very clear picture but do suggest that there may not be much lasting impact of these conflicts on the broad direction of the market over a three-to-six-month period.
While the index was down 16% three months after the start of the Gulf War, it had recovered to just a negative 3% six months down the line. Three months after the Yemeni Civil War the index was flat, but six months down the line, it was 6% lower. In the case of other conflicts like the Iraq War and the Iran-Israel conflict in June 2006, the index was higher both three and six months down the line.
Hence, according too much significance to the present conflict between Israel and Iran from an economic perspective may not be fair, though there could be supply disruptions in the energy market and further troubles in shipping goods across the world.
Worries beyond West Asia
Even as concerns around West Asia hostilities may not be enough to derail the trend in equity markets, there are several other factors presently at play that can cause a significant change in outlook. The US Presidential Election to be held in November could have a significant bearing on how the world’s largest economy steers itself.
Then there’s the US Federal Reserve’s flip-flop on interest rate trajectory, with “higher for longer” now on the table versus three to four interest rate cuts during the year anticipated earlier. There’s also the big disruption with AI and the floundering fortunes of the EV business, that need to be kept an eye on. But most importantly, it is the froth building up in several asset classes, including equities, with most experts finding it hard to justify any further upside in valuations.
So, while the Israel-Iran conflict may not be a big enough reason for you to re-evaluate your investment strategy, there are enough other factors at play that would suggest you should be guarding against adventurism at this point. Tread cautiously.
Happy investing.
| PROMINENT MIDDLE EAST CONFLICTS | ||
| Year | Conflict | Casualties |
| 1948 | Arab-Israel Conflict | 70,000-80,000 |
| 1962 | Northern Yemen Civil War | 100,000-200,000 |
| 1978 | Kurdish-Turkish Conflict | 30,000-100,000 |
| 1980 | Iran-Iraq War | 1-1.25 mn |
| 1990 | Gulf War | 40,000-57,000 |
| 2003 | Iraq War | 100,000-650,000 |
| 2004 | Shia Insurgency | 8,500-25,000 |
| 2006 | Iran-Israel Proxy Conflict | ~2,000 |
| 2013 | War in Iraq | 155,000-165,000 |
| 2015 | Yemeni Civil War | >375,000 |
| 2023 | Israel-Hamas War | >34,000 |
| 2024 | Iran-Israel Conflict | NA |
Source: Wiki
What history tells us
We looked at conflicts in West Asia since 1990 for clues on market direction. For this, we took note of the movement in the S&P500 index from near the time of the break-out of the conflict to three months and six months after this. The results don’t offer a very clear picture but do suggest that there may not be much lasting impact of these conflicts on the broad direction of the market over a three-to-six-month period.
While the index was down 16% three months after the start of the Gulf War, it had recovered to just a negative 3% six months down the line. Three months after the Yemeni Civil War the index was flat, but six months down the line, it was 6% lower. In the case of other conflicts like the Iraq War and the Iran-Israel conflict in June 2006, the index was higher both three and six months down the line.
Hence, according too much significance to the present conflict between Israel and Iran from an economic perspective may not be fair, though there could be supply disruptions in the energy market and further troubles in shipping goods across the world.
| S&P-500 CHANGE & ME CONFLICTS | |||
| Conflict | Start Month | 3mth (%) | 6mth (%) |
| Gulf War | Aug-90 | -14.6 | -3.4 |
| Iraq War | Mar-03 | 14.6 | 19.8 |
| Iran-Israel Proxy Conflict | Jun-06 | 2.7 | 10.3 |
| War in Iraq | Dec-13 | 2.8 | 6.5 |
| Yemeni Civil War | Mar-15 | 0.2 | -6.4 |
| Israel-Hamas War | Oct-23 | 10.8 | 22.7 |
Worries beyond West Asia
Even as concerns around West Asia hostilities may not be enough to derail the trend in equity markets, there are several other factors presently at play that can cause a significant change in outlook. The US Presidential Election to be held in November could have a significant bearing on how the world’s largest economy steers itself.
Then there’s the US Federal Reserve’s flip-flop on interest rate trajectory, with “higher for longer” now on the table versus three to four interest rate cuts during the year anticipated earlier. There’s also the big disruption with AI and the floundering fortunes of the EV business, that need to be kept an eye on. But most importantly, it is the froth building up in several asset classes, including equities, with most experts finding it hard to justify any further upside in valuations.
So, while the Israel-Iran conflict may not be a big enough reason for you to re-evaluate your investment strategy, there are enough other factors at play that would suggest you should be guarding against adventurism at this point. Tread cautiously.
Happy investing.
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